Hotelling Was Right About Snob/Congestion Goods (Asymptotically)
Working Paper No. 06-W21
Christian Ahlin and Peter Ahlin
ABSTRACT [article]
We add congestion/snobbery to the Hotelling model of
spatial competition. For any firm locations on opposite sides of
the midpoint, a pure strategy price equilibrium exists and is
unique if congestion costs are strong enough relative to
transportation costs. The maximum distance between firms in any
pure strategy symmetric location equilibrium declines toward zero
as congestion costs increase relative to transportation costs.
For any non-zero minimum distance between firms, high enough
congestion costs relative
to transportation costs guarantee that the unique pure strategy
symmetric location equilibrium involves minimum differentiation.
In this sense Hotelling was right about differentiation of
snob/congestion goods.
Keywords and Phrases: Hotelling, spatial competition, differentiation,
congestion, snobbery
JEL Classification Numbers: D21, D43, R12